Russia says Jewish Agency owes taxes

Students at a Jewish Agency-funded ulpan in Kislovodsk learn Hebrew in May 2004. (Sue Fishkoff)

MOSCOW (JTA) -– A leading Jewish organization in Russia has drawn the attention of state tax authorities in a move that seems consistent with the increasing difficulties confronting foreign organizations.

The Jewish Agency in Russia, the name under which the Jewish Agency for Israel operates here, was on a list released recently by the Russian Federal Tax Service of companies and organizations that owe state taxes. The groups listed must, in the words of the tax authorities, improve their financial performance or face heavy fines, a freeze on their bank accounts and even bankruptcy proceedings.

The agency’s taxpayer number was listed along with that of several hundred other businesses and groups that the tax authorities claim did not pay taxes due for the 2005-2006 fiscal year.

The list was completed on June 13 but was made public only in late July.

The development came as a surprise to the Jewish Agency. Alex Selsky, a Jewish Agency spokesman in Jerusalem, told JTA that his organization does not understand why it is on the tax authority’s list.

“The Sokhnut in Russia pays taxes like any organization,” he said, using the group’s Hebrew name. “The only exception is profit tax, since the Sokhnut is a non-commercial organization and, as such, doesn’t produce profit. The very notion that the Sokhnut must pay taxes on profits is inconsistent with the nature of its activity and its objectives.”

Selsky said the Jewish Agency in Israel views the situation as “completely normal,” and said the Russian branch is “in no way” facing bankruptcy.

A tax authority representative declined to explain to JTA why the Jewish Agency was included on its list of debtors, but offered to respond in writing within a month.

The tax notice comes amid an atmosphere that is increasingly unfriendly to non-profits in general, and to foreign non-profits in particular.

Foreign non-governmental organizations working in Russia have been under intense pressure since late 2005, when new, stricter regulations on their activity came into force after Russia President Vladimir Putin accused foreign NGOs of meddling in Russia’s internal affairs. On other occasions, federal authorities have accused foreign NGOs of providing an umbrella for foreign intelligence services or religious sects.

In late 1996, the Jewish Agency for Israel began operating in Russia as a local non-profit called the Jewish Agency in Russia. The new name was adopted after Russian authorities withdrew the agency’s registration six months earlier, claiming it had no right to work in the country. The name change and restructuring, which included a local board of directors and local bank account, was intended to distance the Jewish Agency in Russia from its foreign connection, a distance that remains in effect today.

The Jewish Agency in Russia’s primary mandate is to assist Russian Jews who want to resettle in Israel. In addition, the agency provides communal, educational and humanitarian services to the estimated half-million to 1.5 million Jews remaining in Russia.

An employee for Chama, a leading Moscow Jewish charity, said the tax laws for non-profits in Russia are unfair.

“The disabled people our charity works with are legally obliged to pay taxes on the aid we give them,” Svetlana Raldugina, an accountant at Chama, said, referring to food packages and clothing that Chama distributes to elderly and needy Jews. “NGOs should not and cannot be profitable. But in Russia, commercial and non-commercial organizations are taxed the same way.”

Russian lawmakers are currently working on a bill to redress this problem. The bill, which is expected to be made public this month, would provide tax-exempt status for non-profit groups that provide “socially useful” services and are not involved in any commercial activity. If approved, the law is expected to take effect in 2008.

According to Russian tax authority regulations, an organization can be called “unprofitable” if its losses exceeded 100 million rubles, or about $3.9 million, during the previous financial year. The list also includes businesses that are in arrears in salary payments, or whose workers receive wages deemed “significantly lower” than the industry standard. The groups on the list must explain their financial difficulties to the tax authorities and take prompt measures to adress them or face prosecution.

But Yuri Vorobiev, a Moscow attorney, said that in order to punish one of these companies or organizations, tax officials must prove that it is intentionally hiding profits.

Raldugina of the Chama charitable group said there is no question of the Jewish Agency hiding profits, or of its lawyers making any errors that could be interpreted as such. “They are highly professional people and I can hardly imagine what errors they could make that would expose the Jewish Agency to the Federal Tax Service,” she said.